The real truth about Amazon

History has a way of illuminating the future.

As much as they talk about wanting to build revolutionary products, in most big tech companies, Apple, Google, Facebook or Amazon, evolution trumps revolution on most days.

Amazon has, at this point, defined their model so thoroughly, that I find it fascinating how in awe everyone is when they make an announcement like a new healthcare initiative, as if it makes no sense whatsoever.

Predicting how the Amazon, Berkshire Hathaway, JPMorgan Chase healthcare initiative is going to take shape should be straightforward, Amazon have been laying out the breadcrumbs for years.

Amazon does everything with very precise intent

Berkshire Hathaway and JP Morgan Chase were very specifically chosen as partners.

Berkshire Hathaway owns a reinsurance business company called Gen Re; reinsurance is the money behind big insurance companies ( think insurance for insurance ), any significant insurance initiative needs this kind of backing. Berkshire’s deep pockets and experience in this area will be invaluable in navigating the mess that is health insurance, or in building a new insurance company from scratch.

As this initiative takes shape, it’s going to get costly, very costly, so costly as to likely require outside investment and capital, just the thing JPMorgan Chase specializes in. Having access to massive capital will provide the scalability required to address the complexity in fixing healthcare properly, from day one.

Amazon is not a retail business

The full explanation of this would require its own post, but Amazon isn’t a retailer, their core business isn’t to sell goods.

No, Amazon has bigger goals, they’re in the ‘we’d like a piece of every dollar spent business,’ and they’ve positioned themselves perfectly for this.

They spend years building out a platform to support a massive retail operation, using themselves as the first customer. They then open these platforms and allow 3rd parties access, this is how we get AWS and FBA ( fulfillment by Amazon ), systems that were paid for by Amazon and have now become massive revenue generating entities on their own.

This setup is why healthcare makes so much sense and why we’ll keep seeing Amazon enter industries that on the surface might not make sense, but in which Amazon can take all that they’ve built and continue customizing for new industries.

They make every decision based on long-term value

Amazon is playing the long game, and their incredible performance keeps Wall Street from complaining about it ( maybe their most impressive feat in this day and age ), they aren’t focused on what drives revenue next quarter; they’re focused on what will drive revenue for the next 20 years.

The size and scale of the Amazon platform, the sophistication of AWS, the immense amount of money they’re extracting from users ( $1300/yr from Prime members and $800/yr from non-Prime members ), and the likely 30–50-year customer lifetime engagement, give Amazon unprecedented security going forward.

Amazon know their system works, their track record proves they can apply technology to older, inefficient industries and be successful, especially when it comes to massive amounts of data and the complexity of a broad user base.

If they can digitize a component or use data to disrupt, they will

Amazon didn’t invent the concept of selling books; they disrupted the distribution of books by massively expanding selection and availability, they applied technology to the traditional business problems faced by brick and mortar bookstores and changed the game.

They took that same model, expanded it to general retail, using technology, scale and a better user experience to build the worlds largest online marketplace, then took the tech powering the whole thing, broke it down into components and used their size to price it aggressively for anyone to use ( AWS ) and effectively created the consumer cloud computing industry.

They’re in the midst of using data and logistics to streamline the grocery business and from the sounds of it Government Procurement ( see — https://theintercept.com/2017/11/02/amazon-amendment-online-marketplaces/ ) is up next, rinse and repeat.

Healthcare in the US is a system so behind the times, so ripe for disruption; it’s surprising that it took Amazon this long to get there.

So that’s Amazon to this point. How do we extrapolate all that into what they’ll do with healthcare?

Digitize personal data and health records

Digitizing health records has been a long-term goal of the healthcare industry, but competing platforms, a lack of standards and an inability to compromise have kept the efforts from taking off.

By establishing a data standard and using their weight to promote usage, Amazon will bring integrity to the data and keep it secure, while making it accessible across the industry.

Better data for doctors means up-to-date and complete information about patients, making care more efficient, significantly reducing medical errors and ensure reliable prescribing.

Billing becomes streamlined, the whole the process gets more convenient, interactions and communication take a step out of the dark ages.

Build a marketplace for healthcare providers, prescriptions, and medical supplies as part of and adjacent to Amazon.com ( where you’re already familiar, and where your credit card is on file )

This part of the plan seems the easiest to imagine; Amazon will become the default marketplace for goods on both sides of the industry.

Consumers / Patients will get their prescription meds directly from Amazon.com.

Healthcare practitioners purchase their medical supplies from Amazon.com.

It’s also possible that Amazon will ensure that all fees passing between doctors and patients will also flow through the platform.

Cut out as many of the traditional distributors as they can to position themselves as the source

The Amazon model, is to improve a process with technology, then move in and takeover, doing so in healthcare means affecting a handful of providers;

Pharmacies: the easiest to improve upon and replace

• imagine a scenario where immediately upon being prescribed medication, the Amazon Healthcare system automates the process of receiving the prescription from the doctor, debiting your insurance plan and delivering the medication to your doorstep.

Insurance Companies: costly, but makes sense

• you launch an Amazon insurance company to eliminate the inefficient legacy systems involved with finding insurance plans and making claims, major bottlenecks in the landscape. If you are in a position to do this as a break even business, you change the game completely.

Healthcare providers: this is where it gets interesting

• Could Amazon decide that doctors offices or hospitals are too inefficient for their vision and need disrupting as well, it’s not far out of the range of imagination. Again, the key thinking being that Amazon could run these not as profit centres, but as break even businesses that run efficiently and tie directly into the Amazon Healthcare platform across the entire business.

Start with Amazon’s 200,000 employees and then rollout nationwide

Amazon is so often their own first and best customer, and it’s so much easier to tell the people whose salaries you pay, to play a role in testing out a new way to do things. Doesn’t hurt that almost everyone is dissatisfied with the state of healthcare in this country as it is, would likely help with recruiting, a nice secondary effect.

Once you have the system working and you’ve eliminated the inevitable launch issues, roll the platform out to all Americans and / or American companies and the entire north american healthcare industry.

Take a cut of the $3.3 trillion spent on healthcare

In the press release announcing this venture, the companies said the initiative “would be free from profit-making incentives and constraints,” which doesn’t mean there isn’t money to be made.

By cutting out the fat and the obscene costs of healthcare in America today and playing middleman to all the purchasing in the industry ( consumer and provider ) there’s little doubt if all this new setup will create massive revenue potential.

Could Amazon capture 2% of that $3.3 trillion ( 2016 spending ), or 5%, more? We’re immediately talking massive sums of money, right from launch.

Become the First company with a trillion dollar market cap ( I just threw this in for fun, won’t just be because of healthcare, but it’s happening )

Toss up right now whether Apple beats them to it, but it’s going to happen for both.

As a final thought, in thinking about today’s announcement, as everyone jumped all over themselves to discuss how hard healthcare is and how entrenched the current players are, I kept coming back to this quote about how Apple wasn’t going to disrupt the mobile phone industry;

• “We’ve learned and struggled for a few years here figuring out how to make a decent phone … PC guys are not going to just figure this out,” said then-Palm CEO Ed Colligan in 2006, after news that Apple was developing a phone. “They’re not going to just walk in.”

As it relates to healthcare, Amazon gets scale, they’ve mastered logistical complexity, they understand payments, they have an employee user base of a few hundred thousand people to work out the kinks with, and they have an industry screaming for disruption.

You’re damn right they’re going to walk in and figure this out, if only in a way that gets Amazon a few points off the top.